Page 4 - bne magazine September 2023

4 I Companies & Markets bne September 2023
Inflation rates are falling across CEE, leading economists to predict rate cuts in the coming months. / bne IntelliNews
CEE easing cycles around the corner Ben Aris in Berlin
With inflation passing its peak in most of the countries of Central and Eastern Europe (CEE) (chart), central bankers are switching gears from aggressively tightening rates to curb price rises to starting to cut rates in the hopes of avoiding a tightening overshoot that could cause recessions across the region.
It’s a delicate balance, as while growth is already slowing nearly everywhere, inflation remains persistently high. Economists warn that the band between inflation curbing hikes and growth promoting cuts is very narrow and easy to get wrong. Nevertheless, some central banks in CEE have already started to cut rates.
Expectations for monetary easing cycles in Poland and Czechia have strengthened last week, Capital Economics reports, driven by weaker-than-expected Polish inflation figures for July and a shift in language at the Czech central bank's MPC meeting. It is now anticipated that both central
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banks will deliver interest rate cuts in the fourth quarter.
“The flash estimate of Polish inflation for July came in at 10.8% year on year, its lowest level since early 2022. Core inflation probably eased further last month too. The pace
of disinflation this year has been much faster than we had expected and there’s now a possibility that inflation falls to single digits as soon as August, meeting the criteria outlined by some MPC members as the trigger to start an easing cycle,” Liam Peach, an emerging market economist with Capital Economics, said in a note.
The Czech central bank (CNB) made a clear shift in language at its recent monetary policy meeting, dropping its previous guidance on further interest rate hikes and stating that policy decisions will be based on incoming data. This
opens the door for an easing cycle to start soon. While a
rate cut in September is a possibility, the CNB maintained a somewhat hawkish tone, and Governor Michl tried to temper